One of the most controversial topics to affect the accounting  profession has been that of earnings management. Companies try to manage  their earnings to match analysts’ projections. There is no formal  definition of “earnings management,” nor a sole source for its ethical  use. This process has recently come under criticism by both auditors and  statement readers.

Using both the required text and external resources, address the  questions provided below. Responses should be unique and incorporate  your personal perspectives that are supported by reading and research.  Initial comments should be 1-2 paragraphs in length for each point.  Follow-up postings should not exceed a paragraph and should add  additional information or perspective to the original author’s comments.

Companies use earnings management to smooth out fluctuations in  earnings and/or to meet stock analysts’ earnings projections. Large  fluctuations in income and expenses may be a normal part of a company’s  operations, but the changes may alarm investors who prefer to see  stability and growth, tempting managers to take advantage of accounting  gimmicks. Also, a company’s stock price will often rise or fall after an  earnings announcement, depending on whether it meets, exceeds or falls  short of expectations. 

Is earnings management the same thing as financial statement fraud?  Does earnings management have a legitimate place in financial reporting?

 
 
 

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